TY - JOUR
AU - Cochrane,John H.
TI - Can Learnability Save New-Keynesian Models?
JF - National Bureau of Economic Research Working Paper Series
VL - No. 15459
PY - 2009
Y2 - October 2009
DO - 10.3386/w15459
UR - http://www.nber.org/papers/w15459
L1 - http://www.nber.org/papers/w15459.pdf
N1 - Author contact info:
John H. Cochrane
Booth School of Business
University of Chicago
5807 S. Woodlawn
Chicago, IL 60637
Tel: 773/702-3059
Fax: 773/702-0458
E-Mail: john.cochrane@chicagobooth.edu
AB - Bennett McCallum (2009), applying Evans and Honkapohja's (2001) results, argues that "learnability" can save New-Keynesian models from their indeterminacies. He claims the unique bounded equilibrium is learnable, and the explosive equilibria are not. However, he assumes that agents can directly observe the monetary policy shock. Reversing this assumption, I find the opposite result: the bounded equilibrium is not learnable and the unbounded equilibria are learnable. More generally, I argue that a threat by the Fed to move to an "unlearnable" equilibrium for all but one value of inflation is a poor foundation for choosing the bounded equilibrium of a New-Keynesian model.
ER -